Aryeh Deri takes over the post after his predecessor Silvan Shalom resigned last month following allegations of sexual harassment.
His Shas party is vital to Prime Minister Benjamin Netanyahu’s right-wing governing coalition, which holds a one-seat majority in parliament.
Deri, who had served as interior minister from 1988 to 1993, was sentenced to three years in prison in 2000 for taking $155,000 in bribes, though his sentence was reduced by a third for good behaviour.
Deri resigned as economy minister in November after refusing to overrule anti-trust authorities’ objections to a major natural gas deal being pushed by Netanyahu.
His resignation allowed Netanyahu to take over the economy minister post himself and move ahead on the gas deal.
Following his resignation, Deri served as development minister for the Negev and Galilee regions.
Critics on Sunday said the interior ministry post should not be granted to someone convicted for corruption. Others argued that Deri, who is also a member of parliament, had paid his debt to society.
The interior ministry notably oversees local government and efforts to prevent illegal immigration. The police fall under a separate ministry.